Federal Court of Australia

Natch v Stennson Pty Ltd [2022] FCA 641

ORDERS

THE COURT ORDERS THAT:

1.    The applicants’ application for extension of time and leave to appeal be dismissed.

2.    The applicants pay the first respondent’s costs, to be agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

1    This is an application for an extension of time in which to file an application for leave to appeal under r 36.05 of the Federal Court Rules 2011 (Cth) in respect of costs orders made by Anastassiou J on 27 October 2021 following the applicants’ discontinuance of their proceeding against the respondents in proceeding number VID 569 of 2019.

2    Leave to appeal is required from the costs order because it was an interlocutory order. See s 24(1A) of the Federal Court of Australia Act 1976 (Cth). The application for leave to appeal was filed on 2 December 2021. It was therefore 22 days late.

3    In written submissions filed by the applicants, the proceeding was summarised along these lines.

4    By a further amended statement of claim dated 1 October 2020, the applicants brought claims related to the so-called “protection work” regime under Part 7 of the Building Act 1993 (Vic) (Building Act). Protection work is defined in s 3 of the Building Act as:

(a)    permanent or temporary work of—

(i)    underpinning, including the provision of vertical support, lateral support, protection against variation in earth pressures, provision of ground anchors and other support for adjoining property; or

(ii)    shoring up of adjoining property; or

(iii)    overhead protection for adjoining property; or

(iv)    other work designed to maintain the stability of adjoining property or to protect adjoining property from damage from building work; or

(b)    any work or use of equipment necessary for the provision, maintenance and removal of work referred to in paragraph (a)—

whether or not the work or equipment is carried out or used on, over, under or in the air space above the land on which the building work is or is to be carried out or the adjoining property …

5    “Adjoining property” is defined in s 3 as “land … which is so situated in relation to the site on which building work is to be carried out as to be at risk of significant damage from the building work”.

6    A relevant building surveyor is responsible for issuing building permits under the Building Act, and in the process of doing so, must determine if protection works are required.

7    The first applicant was the registered proprietor of the property located at 1 Sebastopol Street, Caulfield North, which is Lot 1 on Plan of Subdivision SP026738V. The second applicant was the registered proprietor of the property located at 3 Sebastopol Street, Caulfield North, which is Lot 2 on the same Plan of Subdivision. The third applicant was an owners’ corporation and owns what counsel in the trial below described as the “common property”.

8    The first respondent (Stennson) is the registered proprietor of the property located at 92 Kooyong Road, Caulfield North, which abuts the western boundary of the first applicant’s property. The second respondent (Camillo Builders) is a builder which was engaged by Stennson. The third respondent was the corporate employer of the fourth respondent, who was the building surveyor. (The second, third and fourth respondents did not appear at the hearing of this application for the obvious enough reason that, although they were named as respondents to the application, no part of the application affected them.)

9    In October 2018, Camillo Builders served a protection works notice on the first applicant setting out protection works, being the drilling of ground anchors beneath the applicants’ properties. The notice did not include a document prescribed by the Building Regulations 2018 (Vic), being a statement in a form approved by the Victorian Building Authority which set out the rights and obligations of the adjoining owner (including to respond formally to the protection works notice within 14 days). Without the statement, the first applicant alleged that he was unaware of his rights and legal obligations. No notice was served on the second and third applicants.

10    In November 2018, the first applicant, after consulting with an engineer and learning of the potential impact on his property, objected to the proposed protection works. However, Camillo Builders proceeded with the works, relying on the fact that the first applicant had not lodged a “Form 8” response to the protection works notice (as was required in order formally to disagree with the proposed works under the Building Act).

11    The applicants commenced proceedings in this court for the loss in the value of the properties as a result of having ground anchors beneath them, making the following claims:

(a)    as against all respondents, misleading and deceptive conduct in that they made false representations and/or representations by silence which deprived the first applicant of the opportunity to respond to the protection works within the required time and/or appeal to the Building Appeals Board;

(b)    as against Stennson, compensation under s 98 of the Building Act; and

(c)    as against Camillo Builders, trespass.

12    The proceeding was heard by Anastassiou J in October 2021. At the start of the fifth day of the hearing (22 October), the parties told his Honour that proceedings against the first respondent were sought to be discontinued, to give effect to the terms of compromise between the applicants and the second to fourth respondents.

13    Following the discontinuance, his Honour ordered that:

The Applicants have leave to discontinue their claims set out in the Applicants’ Further Amended Statement of Claim dated 1 October 2020 against the First Respondent on the condition that the Applicants pay the First Respondent its costs of and incidental to this proceeding, and its costs of bringing its cross claims and defending the Second Respondent’s cross claim, including all reserved costs, on a party and party basis, to be taxed in default of agreement.

14    After considering written and oral submissions from the parties, his Honour gave the following reasons for making that order (which are recorded in the transcript of the hearing on 25 October):

My reasons for that decision are as follows. I have not been persuaded by anything said on behalf of the applicants that the usual rule or the usual consequence, I should say, of discontinuance as provided for in rule 26.12(7), should be disturbed. I’ve listened to the submissions you’ve made on behalf of the applicants in relation to the merits of the claim.

But, as the proceeding was apparently resolved as between the applicants and the second and fourth respondents prior to any evidence being given – though, of course, evidence was opened by you and the respondents in the course of the openings and effectively tendered – I had some evidence but untested in cross-examination. Therefore, the difficulty in making any kind of merits assessment of the evidence is apparent. And I don’t propose to attempt ex ante to make an assessment of the merits of the evidence as opened to me, particularly as much of the evidence that is critical to a finding of liability and of damage is contested expert evidence. It is sufficient to say that there were obvious analytical criticisms of the underlying case theory as to loss, which criticisms in the end depended upon an assessment of the expert evidence, particularly the engineering evidence.

And the preponderance of that evidence, at least as opened to me, was to the effect that the ground anchors would do no physical harm to the [applicants’] properties. The evidence as to loss depended upon expert evidence from the valuers, but that evidence was in turn dependent upon and informed by the engineering evidence. I am not in a position, as is so often the case where a proceeding is discontinued prior to any testing of the evidence, to make a merits-based assessment myself, because of the timing at which settlement was apparently achieved as between the applicants and the second to fourth respondents and the consequent timing of the application for leave to discontinue as against the respondent.

I have decided that there is an insufficient basis for the awarding of indemnity costs if for no other reason because of the tacit admission that the ground anchors, on the assumption that the process contemplated by the Building Act was not strictly followed, amounted to a trespass, but, as the first respondent submitted, a trespass resulting in arguably, at least, no damage, the anchors being de-stressed and ultimately, of course, whether or not they caused or could have caused damage in the future, in turn, leads back the question of the untested expert evidence. So I do not regard this case as one that is appropriate for an indemnity costs order because it was not, on the evidence before me, untested, in particular, the expert evidence, so patently hopeless that the claim should never have been brought.

It’s sufficient to say, however, that there were significant criticisms of both the counterfactual hypothesis of the case and of the veracity of the engineering evidence put forward on behalf of the applicants from Mr Shirley which, as Mr Andrew [counsel for the first respondent] has indicated, was strongly contested by credible … engineers who expressed contrary views. Again, one is left in the position, as the court in these circumstances, of having contested views, but contested views which have not been explored or tested in the course of the hearing of the proceeding. Accordingly, it seems to me that the rule in 26.12(7) contemplates the very position that I find myself in, namely, a proceeding that is discontinued, thereby making an assessment of the likely outcome either impossible or inappropriate to embark upon.

So, accordingly, I do not propose to express any views about the merits of proceeding and it is sufficient, in my opinion, that the consequence that follows, in the ordinary course of events, from a discontinuance of a proceeding by an applicant should guide the exercise of my discretion here. I see no reason to depart from that. And, for those reasons, I will grant leave for the applicants to discontinue against the first respondent, but on condition that the applicants are jointly and severally responsible for the costs of the first respondent. Now, in relation to the discontinuance of the proceeding against the second to fourth respondents, that’s a matter that I infer has been agreed by way of compromise between the applicants and those respondents. I do not accept the proposition that there ought be some notional parity in the outcome in terms of the orders.

It is open for parties to [compromise] a proceeding for such reasons and on such terms as they consider appropriate. It doesn’t follow that, because a compromise has been reached as between the applicants and the second to fourth respondents that that ought guide me in some way in terms of drawing an inference from that as to some perception of risk which ought then lead me to conclude, as I think was submitted, that the same risk assessment should be made by the first respondent as, plainly, the first respondent hasn’t made the same risk assessment and, indeed, I’m told from the bar table and accept that there were no negotiations concerning a resolution as between the applicants and the first respondent and, accordingly, I reject that submission. For those reasons, I shall make the order granting leave to discontinue on the terms I have indicated.

15    The applicants now bring this application against Stennson for an extension of time within which to file an application for leave to appeal, and for leave to appeal.

16    The applicants rely on affidavit evidence, the gist of which is that the application for leave to appeal was late filed because of the effects of COVID-19 in relation to the first and second applicants’ domestic situation. I accept the explanations provided in the affidavits relied upon as being an acceptable reason for the delay in filing the application for leave to appeal.

17    The proposed notice of appeal contains the following grounds:

1.    The trial judge erred in finding that, because an assessment of the likely outcome of the trial was either impossible or inappropriate to embark upon, the consequence that followed in the ordinary course of events from a discontinuance by an applicant should guide the exercise of his discretion in the present case.

2.    In ordering that there be a condition of the leave to discontinue that the Appellants pay the First Respondent’s costs, the trial judge failed to properly exercise his judicial discretion in that:

a.    he did not identify, nor apply, the question of law relevant to the exercise of his discretion;

b.    he allowed extraneous and irrelevant matters to guide, or taint, the exercise of his discretion, including that “there were significant criticisms of both the counterfactual hypothesis of the case and of the veracity of the engineering evidence put forward on behalf of the applicants from Mr Shirley”;

c.    he ignored relevant material, including:

i.    non-compliance by the First Respondent with Part 7 of the Building Act 1993 (Vic), and the First Respondent’s tacit admission that there had been non-compliance with that Part;

ii.    that under Part 7 of the Building Act 1993 (Vic) it was the obligation of the First Respondent to ensure compliance with that Part;

iii.    the settlement between the Appellants and the Second, Third and Fourth Respondents of the Appellants’ claims against them; and

iv    the claims brought by the Appellants against the First Respondent were for loss and damage (or compensation under s 98 of the Building Act 1993 (Vic) for loss, damage and inconvenience) which was the same as the loss and damage as claimed, in part, against the Second, Third and Fourth Respondents.

3.    The trial judge erred in law by ordering that it be a condition of the discontinuance by the Appellants against the First Respondent that the Appellants pay the First Respondent’s costs of the:

a.    First Respondent’s cross claim against the Second, Third and Fourth Respondents; and

b.    Second Respondent’s cross claim against the First Respondent.

18    Leave to appeal will only be granted where an applicant can demonstrate that the orders in question are attended by sufficient doubt that reconsideration on appeal is warranted and that substantial injustice would result if the orders were left uncorrected. See Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397.

19    When an applicant appeals against an order as to costs, they must demonstrate that the discretion of the court below miscarried by reason of an error of the kind described in House v The King (1936) 55 CLR 499 at 504–505, viz:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

20    Rule 26.12(7) of the Federal Court Rules 2011 (Cth) provides:

Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

21    The rule creates a presumption that the discontinuing party will pay the costs of the other side unless, for a good reason shown, the court orders otherwise. See, for example, WA Property Holdings Pty Ltd v Colliers International (WA) Pty Ltd [2016] FCA 1089 at [11] (Gilmour J), and Dalian Huarui Heavy Industry International Co Ltd v Duro Felguera Australia Pty Ltd [2018] FCA 905 at [7] (Barker J).

22    The applicants contended that the primary judge “did not identify, nor apply, the question of law relevant to the exercise of his discretion”.

23    It was contended, without reference to any authority, that the judge was required to ask himself the following questions in the exercise of his discretion under r 26.12(7):

(1)    Had the applicants acted reasonably in commencing and continuing the proceeding to the point of discontinuance?

(2)    Had Stennson acted reasonably or unreasonably prior to or during the course of the proceeding?

(3)    Did the applicants surrender, or was there some intervening event of settlement which removed or modified the subject of the dispute, or the proceedings could not be continued due to the settlement?

(4)    What, then, is the proper exercise of the court’s cost discretion?

(5)    Did any of the parties found their claim on its own or its agents’ illegal conduct?

24    It was also submitted, even more improbably, that “even if the trial judge had properly exercised that discretion, there were matters arising from the Respondent’s conduct (which were not within his Honour’s knowledge …) which meant that such a discretion may have miscarried”.

25    It was also submitted at the hearing this morning that his Honour should have taken into account unspecified evidence that the applicants’ suffered damage because they were unable to obtain insurance with respect to their properties. But it was conceded that the point was never raised as any part of his Honour’s consideration in relation to the question of costs. Accordingly, the submission amounts to nothing.

26    To the extent that the applicants rely on matters that are admitted to be matters that were not within the knowledge of the judge, the contention that he erred in exercising his discretion is untenable. In any event, the written submissions of the applicants about the five questions set out at [23] above self-evidently invite a merits review wholly beyond the scope of an application such as this, and wholly beyond the task of the learned judge in determining whether to “provide otherwise” within the meaning of r 26.12(7).

27    The applicants relied in particular upon the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1998) 186 CLR 622 at 624–625 in relation to the difficulties of allocating costs where there has been no hearing on the merits. In those passages, McHugh J among other things referred to the fact that on the hearing of costs applications, the court should not try a hypothetical action. It was submitted, on behalf of the applicants, that his Honour had trespassed into the merits. But he did no such thing. On the contrary, he was at pains to point out that he was not making any attempt to make an assessment of the merits, including for the obvious enough reason that the evidence was, at that point, untested in cross-examination. When his Honour said that it was “sufficient to say that there were obvious analytical criticisms of the underlying case theory as to loss”, his Honour did not make any merits assessment. It was open to his Honour to take into account such “obvious analytical criticisms” of the applicants’ underlying case theory in determining the question whether the applicants had shown any good reason for displacing the presumption created by r 26.12(7).

28    In my view, the applicants have not established that the learned judge made any error in the exercise of his discretion of the type contemplated by House v The King. As the respondents submitted, each party had an opportunity to make submissions to his Honour and he was not persuaded, for the reasons that he gave, that the usual consequence of discontinuance should be disturbed. As the respondents also submitted, the learned judge (and so much is clear from the transcript of the hearing) had considered:

(1)    detailed written submissions filed by all parties before the commencement of the hearing;

(2)    an agreed chronology filed by the parties referring to relevant documents which substantially contained the facts of the case;

(3)    engineering reports filed by the parties; and

(4)    detailed oral opening submissions which occupied three and a half days.

29    As the learned judge’s reasons set out at [14] above demonstrate, his Honour was of the view that:

(1)    the preponderance of the evidence, at least as opened, was to the effect that the ground anchors would do no physical harm to the applicants’ properties;

(2)    while the protection works process contemplated by the Building Act was not strictly complied with, resulting in a trespass, that caused no damage; and

(3)    it was sufficient that the consequence that follows in the ordinary course of events from a discontinuance of a proceeding by an applicant should guide the exercise of the discretion, and that there was no reason to depart from that consequence.

30    In my view, no error of the type identified in House v The King is demonstrated.

31    Accordingly, the application for leave to appeal and for an extension of time will be dismissed, with costs.

Associate:

Dated:    2 June 2022

SCHEDULE OF PARTIES